Payday loans

December 26, 2012

Can Direct Deposit Be Required of Employees?

Filed under: General HR Buzz6:00 am

Direct deposit popularity has grown over the years.  The simplicity of being paid by another party that results in an automatic deposit to the financial institution account of your choice has a certain appeal.  No waiting in lines, no misplacing your paycheck, no missing the closing time, no paper to hassle with . . . there are just so many perks!  From the employer’s standpoint, it is even more attractive, so much so that many wonder if they can require direct deposit.

The answer is not black and white in the Fair Labor Standards Act.  However, 29 CFR § 531.27 requires payment “of the prescribed wages, including overtime compensation, in cash or negotiable instrument payable at par.”  While somewhat helpful, it doesn’t exactly answer the question clearly.  The website  cited the Field Operations Handbook of the U.S. Department of Labor, Section 30c00(b) stating:  “The payment of wages through direct deposit into an employee’s bank account is an acceptable method of payment, provided employees have the option of receiving payment by cash or check directly from the employer.  As an alternative, the employer may make arrangements for employees to cash a check drawn against the employer’s payroll deposit account, if it is at a place convenient to their employment and without charge to them.”

This shows the DOL’s stance on direct deposit, but says the option to be paid in cash or by check must remain open.  Wage & Hour Insights referenced the Society for Human Resource Management’s comprehensive compilation of wage payments and direct deposit laws by state.  Click here to see your state laws.